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Official pre-tax profits for the six months to August 23 plummeted from £1.39 billion last year to just £112million, triggering a new slump in the stock market value, which is down by £4billion in a year.

The company is also reeling over the suspension of eight of its most senior executives amid allegations Tesco artificially inflated its profits.

Tesco in crisis: Chairman Richard Broadbent quit after a disastrous drop in profits, being branded its worst results in its 95-year history

It originally suggested profits were overstated for the first six months of this year by £250m. However, it has now emerged the true figure was a higher £263m and the problems date back to 2012.

Sir Richard, a 61-year-old City veteran, announced that he is to step down after a disastrous three years in charge of the board and executive appointments.

Just a few weeks ago, the Tesco chairman, who is paid £625,000 a year, rejected calls to go saying he wanted to be ‘part of the solution’.

However, yesterday, he said he will leave next year, adding: ‘The issues that have come to light over recent weeks are a matter of profound regret.’

Despite his reputation as a tough businessman, Sir Richard is understood to have sympathies for Buddhist teachings and the philosophy of ‘non-violent communication’.

He may well have felt the need for meditation following his bruising encounter with the media, particularly the Channel 4 News economics correspondent, Paul Mason.

The TV newsman pursued Sir Richard, asking: ‘Why should anyone put up with this level of incompetence running a major company? Why won’t you give us an interview Sir Richard?’

Tesco’s group media relations director, Tom Hoskin, a former head of news in the Downing Street press office, then stepped in to bar the reporter’s path.

He said Sir Richard had already taken part in a 90 minute media briefing and did not have time for any interviews. After further argy-bargy, the Tesco chief executive, Dave Lewis, said he would give an interview.

During the media briefing, Sir Richard refused to accept that he or the board had failed and made the bizarre claim: ‘I think the company has been well governed’.

He insisted the decision to resign was his own and had not been forced through by City investors upset by the collapsing share price.

Trouble: Tesco profits have fallen by 91 per cent today after the supermarket announced falling sales and a £250million accounting scandal

Stark: Tesco was considered untouchable but its profit fall in the past year has been unprecedented

Ailing giant: New CEO Dave Lewis, pictured today, says he is the man to turn the supermarket around as millions of customers left for rivals

Sir Richard said his resignation ‘reflects the important principle of accountability’ and will ‘support the company to draw a line under the past’.

Analysts at Shore Capital said the board should take responsibility for the supermarket’s problems. Some £17billion has been wiped off the Tesco stock market value over the last five years, a period when board members have pocketed £75million.

Shore Capital said: ‘Tesco has had quite a few years of challenge and disappointment. However, we can never recall a period so damaging to the reputation of the company.

Extraordinary: Tesco's share price was at just under £4 18 months ago but now it is around £1.70

‘That a powerhouse of international retailing was reduced to a rudderless corporate entity where downgrade followed downgrade, executive followed executive out of the business, with no effective succession planning, capped by a material accounting issue, reflects to a detrimental extent, to our minds, upon those who are the guardians of Tesco on behalf of its owners.’

Phil Dorrell, director of Retail Remedy, said: ‘Tesco needs a clean break from this sorry saga and, through Sir Richard Broadbent’s departure, will have the best chance of achieving it.’

Tesco’s new chief executive, Dave Lewis, who was parachuted into the business in the summer, has the job of winning back shoppers who have deserted to the cheaper Aldi and Lidl.

He seems to have ruled out a ‘blood and thunder’ price war. Instead, the company is likely to sell off various parts of the business, such as the Dobbies garden centres, to prop up its finances.

Mr Lewis put a brave face on the debacle, saying: ‘I don’t think the business is in a big hole. I am really very hopeful that we can get Tesco back to be the force that it has been.

‘Our business is operating in challenging times. Trading conditions are tough and our underlying profitability is under pressure.’

He added: ‘We know that we have got a lot of work to do. We know what it is we need to do to turn the business around. We were the best supermarket for customers and we will be again.’

However, City analysts are concerned that Tesco appears to be in a state of limbo without a ‘big idea’ to boost sales.

Richard Hunter, of Hargreaves Lansdown Stockbrokers, said it was impossible to know whether Tesco has turned a corner. ‘The unforgiving trading environment and changing consumer habits will make any turnaround even more challenging,’ he said.

Julie Palmer, retail expert at Begbies Traynor, said: ‘What shareholders will want to know is why the supermarket chain has been so slow to respond to the seismic changes in consumer buying behaviour.

‘Dave Lewis will now be concentrating on a strategy that can compete with Aldi and Lidl’s unwavering success...The question is, will it be too little too late for what was once Britain’s favourite supermarket.’

Tesco's shares dive-bombed by 12p yesterday, meaning it has suffered a £4billion drop in market value this year alone. Shares worth just under £4 in April last year are now available for £1.71.

The latest industry data shows Tesco's sales are falling at the fastest rate in the sector and UK trading profit was down 55.9 per cent to £499million, it was announced today.

A report by Moody’s Investors Services last week said profit margins at the Big Four – Tesco, Sainsbury, Asda and Morrisons – are ‘likely to shrink further over the next 12 to 18 months’.

It estimates it would cost Tesco £1.5billion to drop prices by six per cent, £500million to correct a 25 per cent shortage of staff in stores, and up to £1billion improving the quality of products.

But it is the accounting scandal that has caused the most recent damage to Tesco, with the Serious Fraud Office admitting it is 'following developments at Tesco with interest'.

Mr Lewis dismissed the idea that fraud may have been involved in the accounting blunder: 'Nobody gained financially as a consequence of the overstatement of performance.'

When asked if it was 'cock-up or conspiracy' he declined to use either phrase.

The chief executive also revealed that payments due to his predecessor Philip Clarke and former finance director Laurie McIlwee were being withheld pending investigations.

Eight current executives remain suspended.

When his departure was announced, Mr Clarke had been in line for another 18 months’ pay totalling £1.7 million while he is also in line for deferred share awards worth up to around £5 million at the current share price.

Dramatic: Tesco's share price plunged this morning after more bad news for the supermarket giant

Mr McIlwee was due £971,000 in salary and benefits and is in line for deferred share awards currently worth up to around £3 million.

Shore Capital retail analyst Darren Shirley said the fact that the accounting issue relates to more than just the first half of the year raised 'all sorts of questions to our minds as to what has gone on in prior years'.

He added: 'We cannot, therefore, rule out that a lot of ground will have to be raked up with potentially time-consuming and damaging ongoing headlines for Tesco. If there is a silver lining here then it is that Mr Lewis has acted quickly, decisively and that he is not associated with the practices.'

The problems were highlighted by a Tesco whistleblower and came at a time when the management was in turmoil because of the imminent departure of the chief executive, Philip Clarke, and the chief financial officer, Laurie McIlwee.

The chairman of the Tesco board, Sir Richard Broadbent, has faced demands to resign from some quarters for failing to ensure there was proper oversight of the executives.

The senior staff who have been suspended include the UK managing director, Chris Bush, aged 48, who has been with the company for more than 30 years.

Others removed from the business include the UK finance director Carl Rogberg, commercial director, Kevin Grace, the food commercial director, John Scouler, and the food sourcing director Matt Simister have also been suspended.

Battle of the supermarkets: Tesco is by far the largest supermarket in Britain, but it is losing market share to its rivals, especially cheaper supermarkets like Aldi and Lidl

More recently, Dan Jago, Tesco's UK and group wine director, Sean McCurley, director of convenience foods, and William Linnane, director of impulse purchases have also been suspended.

The removal of so many senior managers has left Tesco's management in a state of limbo with the company appearing to be rudderless.

A number of newly built stores around the country have effectively been mothballed, while others that were on the drawing board, including a vast outlet in Margate, Kent, have been cancelled.

TWO YEARS OF CRISIS: HOW DID IT ALL GO WRONG FOR TESCO?

By Rachel Rickard Straus

Shopping habits: Millions of shoppers have left Tesco for rivals, either Lidl and Aldi at the budget end or Waitrose at the high end

For a long time Britain’s biggest retailer could do no wrong: in just 13 years its profits grew more than four-and-a-half times to £3.4billion in 2010. It boasted an incredible 30.5 per cent share of the grocery market – and US investing titan Warren Buffet was, until as recently as last year, a huge fan.

Fast forward a couple of years and the company is regarded as something of a basket-case.

The cracks started to show in 2012, as cash-strapped shoppers started to turn in their droves to budget supermarkets Aldi and Lidl. Mainstream supermarkets including Tesco, Morrisons and Sainsbury’s suffered as increasingly savvy shoppers shopped around for the best deals: looking for cut-price essentials at the budget supermarkets and trading up for affordable luxuries at Waitrose and Marks & Spencer.

Tesco shocked the market with its first profit warning in almost 20 years and the revelation saw shares plunge by as much as 15 per cent. And the situation deteriorated as UK shoppers flocked to the discounters.

Tesco reported its first fall in annual profits in 19 years in April last year, with post-tax profits tumbling almost 96 per cent in a year. It decided to ditch its chain of US stores Fresh & Easy, which despite more than a billion pounds of investment failed to turn a profit. It also had to write off £804million for land bought at the height of the property boom, which following the financial crisis it decided would not be developed.

Tesco threw everything it could at battling the budget supermarkets. It decided to change its focus from offering discounts and special offers to luring shoppers in with the promise of low prices on basics week in week out. It announced in February this year that it would spend an extra £200million on lower prices for basic products, such as bread and milk. But it was not enough to convince shoppers, and still profits fell, and market share was squeezed again to 28.6 per cent in March this year.

Beleaguered chief executive Phil Clarke failed to convince investors that his strategy to return the retailer to glory was working. In July Tesco announced he would step down, and he was replaced this month by Unilever executive Dave Lewis. In August Tesco issued another profits warning and slashed its dividend to shareholders by 75 per cent.

Shopping habits have changed dramatically over the past couple of years and Tesco has faced a particularly uphill struggle to adapt: being such a retailing behemoth any change in direction requires time and huge amounts of investment. Time-poor households increasingly ditch their weekly shop in favour of smaller ‘top up’ shops at convenience stores.

And as families’ budgets remain under pressure, they are less likely to buy their groceries and throw a new television or barbeque into the trolley as well. While Tesco has plenty of smaller convenience-style stores it also has thousands of square feet of giant megastores and out of town retail spaces.

The rise in online shopping is also helping to make the megastore model increasingly redundant.

Then last month came disastrous news, and the last thing the retailer needed: ‘accounting errors’ had led it to overstate profits by £250million. We know today the over-estimate was even greater and the causes murkier. Accountant Deloitte is investigating, the Financial Conduct Authority has launched a probe, eight executives at the top have been suspended and there is talk of a criminal investigation.

Today Tesco revealed pre-tax profits have tumbled again by 91.9 per cent to £112million in the first half. Chairman Sir Richard Broadbent said he is preparing to step down, and Tesco’s biggest cheerleader Warren Buffet has ditched his shares, calling his investment a ‘huge mistake’.

Tom Salmon was on holiday in Tenerife when the crisis engulfing Tesco started to unfold. The former managing director of Hedon Salads, one of the grocer’s key producers of aubergines, tomatoes, cucumbers and peppers, started having flashbacks.

Details that Britain’s biggest retailer had inflated profits by £250m, suspended staff, and launched an investigation into the way it conducts its business with suppliers, even made it over to the volcanic Spanish island.

Mr Salmon had experienced first-hand the relationship between the grocer and some of its suppliers that is being examined in an internal probe.

Complaint: Former Tesco supplier Tom Salmon, who sold salad items, has described how he believes suppliers are treated and describe how he believes this has impacted on the business

Most of the supermarkets, along with Tesco, strike similar arrangements with their suppliers.

Hedon was the prominent supplier of fresh salad to Tesco, owning large glasshouses.

‘My company has supplied all the major retailers and I have over 40 years’ experience in the ways that they work,’ Salmon said.

‘I thought my story may help in some way explain what suppliers have gone through and give a slightly different perspective on the demise of Tesco.’

From 2002 he says Tesco started to change the way it did business and the supplier became more responsible for the prescribed profit margin that Tesco’s buyers had to achieve.

He said that over the years Tesco introduced extra charges to the supplier.

‘As time went by these charges became more onerous, first it was to pay for new quality ideas’, he said. ‘They charged for new a label system, they charged for the introduction of new technology and they took the same line every time.

‘If you want to supply Tesco you have to pay. As the years went by the charges became more unreasonable, the buyer’s profit margin was down and he or she was not going to make their bonus.

‘What were we as a supplier prepared to pay at the start of next season before the buyer would even consider us as a supplier?’

For decades, big suppliers such as Kellogg’s, Coke and Gillette have paid supermarkets to help fund promotions to shift more of their goods. This can mean they contribute to advertising campaigns on television and in newspapers, or they might fund a special display in shops.

Sometimes, when items are discounted, say from £9 to £5, it is the suppliers that pay the £4 difference. On top of this, suppliers also pay supermarkets fees to place their items in the best positions on the shelves.

Salmon says: ‘My company also had to face a wave of supplementary charges.

‘We had to buy all our packing from a stated supplier from which Tesco took a roll [a cut] off the top. The worst case was in 2010 when the weather in Southern Spain was so bad that salad produce was very short.

‘We could not supply aubergines for two weeks and the result was Tesco fined us £45,000 for loss of profit.

‘We declined the fine and said we would not pay, they promptly took the money from our account that they owed us.

‘At the end of 2011 I retired, but I felt that the Tesco bubble was starting to burst. Suppliers could not go on supplying like this.

‘It had become impossible to service Tesco with all these add-on costs and demands.’

A Tesco spokesman said: ‘We did not have the opportunity to examine and respond to these complaints in detail. We value our relationships with suppliers. They are fundamental to the service we offer our customers and we are committed to ensuring that those relationships are based on mutual benefit.’